7 Strategies to Succeed Abroad
Expanding internationally presents businesses with immense opportunities for growth, access to new markets, and the potential to diversify their customer base. However, it also comes with significant challenges that, if not properly addressed, can lead to costly failures. At Global Wisdom, we have unfortunately witnessed many companies—large and small, and from a variety of sectors—stumble or outright fail in their attempts to internationalize. These failures are often due to a lack of preparation, misunderstanding of local markets, or inadequate planning, all of which can derail even the most successful domestic businesses.
To ensure smooth internationalization and avoid the pitfalls that have caused others to fail, companies must approach expansion strategically. Whether it's adapting to cultural differences, complying with local regulations, or ensuring financial sustainability, businesses need to carefully consider a range of factors before making the leap into a new market. Below, we outline seven key considerations that can help businesses navigate the complexities of international expansion and set the foundation for success abroad.
1. Understand and Adapt to Market Differences
One of the most critical mistakes businesses make when entering foreign markets is assuming that their domestic strategies will work as effectively abroad. However, market dynamics can vary significantly between countries. Consumer preferences, cultural norms, and competitive environments all influence how a product or service is received. In some cases, the exact same product that is popular in one country may not resonate in another due to these differences. Businesses must carefully analyze factors such as buying behaviors, pricing sensitivity, and local competitors to understand what drives the local market. This requires more than surface-level research—it involves a deep dive into the local context to develop a tailored strategy.
For example, Walmart’s failure in Germany highlighted the consequences of ignoring these differences. The retailer assumed that its U.S.-style low-cost, high-service model would succeed in Europe. However, German consumers, accustomed to no-frills shopping experiences with local discount leaders like Aldi and Lidl, found Walmart’s approach of cheerful greeters and employee-bagged groceries intrusive and unnecessary. Moreover, Walmart faced regulatory and labor challenges that further hindered its operations. Ultimately, Walmart was forced to withdraw from the market, incurring substantial financial losses (Deutsch, 2006). The lesson is clear: businesses must not only understand but also adapt to the unique characteristics of each foreign market to thrive.
2. Localize Your Marketing Strategy
A common oversight for businesses entering new markets is failing to localize their marketing strategies. Many companies assume that translating their existing materials into a different language will be enough to appeal to a new audience. However, effective marketing goes beyond language—it requires an understanding of the cultural context, values, and communication styles of the target market. Messaging that resonates with consumers in one country may fall flat or even offend in another. This can lead to poor brand perception, low customer engagement, and ultimately, underperformance in the market.
Starbucks’ entry into Australia in 2000 serves as a prime example of the importance of localization in marketing. Despite being a globally recognized brand, Starbucks failed to account for Australia’s established coffee culture, where consumers preferred independent cafes offering high-quality espresso. Starbucks’ American-style offerings and marketing, which emphasized sugary drinks and convenience, didn’t align with local preferences. As a result, the company struggled to gain traction and had to close the majority of its stores within eight years (CNN, 2008). Businesses must craft their marketing strategies to reflect the tastes and values of the local market, investing in tailored messaging and campaigns that resonate with local consumers.
3. Comply with Local Legal and Regulatory Frameworks
Navigating the legal and regulatory landscape of a foreign market is essential for ensuring operational success. Each country has its own laws related to taxation, employment, environmental standards, and product safety, among others. Businesses that fail to fully understand and comply with these regulations risk facing fines, legal disputes, and even being forced out of the market. Regulatory environments can be complex, and what is acceptable in one country may not be legal in another. For instance, labor laws in many European countries are much stricter than in the U.S., requiring businesses to adapt their employment practices when expanding abroad.
Uber’s experience in Europe illustrates the potential consequences of not aligning with local regulatory requirements. The company expanded rapidly across the continent, assuming that its ride-sharing model would work as it did in the U.S. However, European cities like Paris, London, and Berlin had strict taxi regulations that Uber ignored. The result was widespread pushback from local authorities, leading to legal battles, protests, and even operational bans in some areas. Uber was forced to rework its strategy and comply with local laws, highlighting the importance of understanding the regulatory landscape before expanding internationally. Businesses must work closely with local legal experts to ensure they meet all regulatory requirements and can avoid costly mistakes.
4. Choose Local Partners Carefully
Selecting the right local partner is a crucial decision when entering a foreign market. Local partners can provide valuable insights into the market, help navigate the regulatory environment, and establish connections with key stakeholders. However, choosing the wrong partner can lead to misalignment of goals, communication breakdowns, and operational inefficiencies. It’s essential for businesses to conduct thorough due diligence when selecting a partner to ensure that they share the same values, understand the local market dynamics, and are capable of executing the business strategy effectively.
Danone's Joint Venture with Wahaha in China illustrates the risks of choosing an ill-suited local partner. Danone, a French multinational food-products corporation, entered the Chinese market in 1996 by forming a joint venture with the Hangzhou Wahaha Group, China's leading beverage company. Initially, the partnership was successful, and the joint venture became a significant player in the Chinese beverage market.
However, over time, significant conflicts arose between Danone and its local partner regarding trademark ownership, management control, and business practices. Danone accused Wahaha of operating parallel companies outside the joint venture to produce and sell products similar to those of the partnership, violating non-compete agreements. Wahaha, on the other hand, accused Danone of trying to take over its business unfairly.
This misalignment of goals and lack of mutual understanding led to a protracted legal battle spanning multiple countries, damaging both companies' reputations and operations in China. Ultimately, in 2009, Danone agreed to sell its 51% stake in the joint venture back to Wahaha, effectively ending the partnership (Barboza, 2009). This example highlights the importance of thoroughly vetting potential local partners to ensure alignment in terms of business objectives, cultural values, and strategic vision.
5. Develop a Robust Financial Plan
Financial planning is a key component of any successful international expansion. Expanding into new markets often involves significant upfront investments, including costs for setting up operations, complying with local regulations, and marketing. In addition to these initial costs, businesses must also account for ongoing expenses related to supply chains, currency fluctuations, and potential taxation differences. Without a detailed and realistic financial plan, businesses can quickly run into financial difficulties that may jeopardize their ability to succeed in the new market.
Target’s expansion into Canada is a case study in the consequences of inadequate financial planning. When the U.S. retailer entered the Canadian market in 2013, it failed to fully anticipate the costs of converting a network of acquired stores to meet Target’s brand standards. These costs, combined with supply chain issues and mismanagement of inventory, led to financial losses and ultimately forced Target to close all of its Canadian stores in less than two years, losing approximately $2 billion in the process. To avoid such costly errors, businesses must develop a comprehensive financial plan that includes realistic budgeting, contingency plans, and strategies for managing local market risks.
6. Adapt Your Business Model to Local Preferences
A rigid business model that works well in one market may not necessarily succeed in another. Companies need to be flexible and willing to adapt their products, services, and operational strategies to meet the demands of the local market. Factors such as consumer behavior, distribution channels, and pricing sensitivities often differ across regions, and businesses must be prepared to modify their business models accordingly to stay competitive.
eBay's expansion into China highlights the importance of business model adaptation. When eBay entered China in 2002 by acquiring the leading Chinese auction site EachNet, it attempted to replicate its successful U.S. auction-based model, including charging listing and transaction fees. However, Chinese consumers preferred platforms that allowed free listings, bargaining, and direct communication between buyers and sellers. Local competitors like Alibaba's Taobaocapitalized on these preferences by offering free listings and integrating instant messaging tools to facilitate real-time communication.
eBay's failure to adjust its model to align with local preferences led to its rapid decline in the Chinese market. Taobao's user-friendly approach and better understanding of Chinese consumer behavior allowed it to capture a significant market share. By 2006, eBay had lost substantial ground to Taobao and announced a joint venture with Tom Online, effectively scaling back its operations in China (Einhorn, 2006). This example underscores that businesses should remain flexible and be willing to adapt their operations and strategies to better suit the preferences and expectations of the local market.
7. Scale Expansion at a Sustainable Pace
While rapid expansion can seem appealing, especially when entering a large and promising market, it can also lead to significant operational and financial strain. Businesses that grow too quickly often find themselves struggling to manage supply chains, maintain product quality, and provide adequate customer support. Scaling at a sustainable pace allows businesses to gradually build infrastructure, test their product-market fit, and refine their strategies based on feedback from the new market.
Tesco’s overly ambitious expansion into the U.S. with its Fresh & Easy stores serves as a cautionary tale. The company opened over 200 stores across several states in a short time frame, despite not fully understanding U.S. consumer preferences. Tesco’s small-format stores failed to attract the expected number of shoppers, and the company’s rapid expansion strained its operational capabilities. After incurring over $1 billion in losses, Tesco exited the U.S. market in 2013. Companies should focus on steady, manageable growth and ensure that they have the operational capacity to support each new phase of their expansion.
Conclusion
International expansion is an exciting opportunity for businesses, offering the potential for growth, diversification, and access to new markets. However, it also brings a unique set of challenges that can quickly derail even the most promising ventures if not carefully managed. By taking the time to understand and adapt to local market conditions, develop robust financial plans, comply with local regulations, and work with reliable local partners, businesses can greatly increase their chances of success. Expanding at a sustainable pace and maintaining flexibility to adjust your business model to local preferences are equally critical in ensuring long-term viability in foreign markets.
At Global Wisdom, we have seen firsthand the pitfalls that companies face when expanding internationally. We are committed to helping businesses avoid these common missteps and guide them toward successful international growth. Whether you are a small business taking your first steps into new territories or a large corporation looking to expand further, our team is here to support you. We would be delighted to discuss your plans, provide strategic insights, and help you navigate the complexities of internationalization. Reach out to us today, and let’s work together to ensure that your global expansion is a resounding success.
References:
· Claudia H. Deutsch, "Wal-Mart Finds That Its Formula Doesn't Fit Every Culture," The New York Times, August 2, 2006.
· Andreas Knorr and Andreas Arndt, "Why Did Wal-Mart Fail in Germany?" Institute for World Economics and International Management, University of Bremen, 2003.
· "Starbucks to Close 61 Stores in Australia," CNN Money, July 29, 2008.
· "Why Starbucks Failed in Australia," The Guardian, December 4, 2016.
· "How Australia Beat Starbucks," BBC News, July 31, 2018.
· Samuel Gibbs, "Uber Banned Across Germany by Frankfurt Court," The Guardian, September 2, 2014.
· "Uber Suspends UberPop Service in France Amid Legal Pressure," BBC News, July 3, 2015.
· "Uber Loses Licence to Operate in London," BBC News, September 22, 2017.
· "Uber’s London Licence Renewed for 30 Months After Legal Battle," The Guardian, March 26, 2022.
· "Uber Faces Ban in Berlin and Hamburg," Reuters, March 18, 2015.
· David Barboza, "Danone Ends Dispute With Chinese Partner," The New York Times, September 30, 2009.
· Patti Waldmeir and Tim Burt, "Danone Quits Wahaha Venture," Financial Times, September 30, 2009.
· Roy Y.J. Chua, Seng Yee Leong, and Ivy Buche, "The Danone–Wahaha Conflict," Harvard Business School Case Study, April 2010.
· "Target Corporation Announces Plans to Discontinue Canadian Operations," Target Corporation Press Release, January 15, 2015.
· Sophia Harris, "Target's Canada Exit: What Went Wrong?" CBC News, January 15, 2015.
· Marina Strauss, "The Five Flaws That Felled Target Canada," The Globe and Mail, January 15, 2015.
· Hollie Shaw, "Target Canada: A Colossal Failure That Was ‘Doomed from the Beginning’," Financial Post, January 15, 2015.
· "Target to Exit Canada After Failed Expansion," Reuters, January 15, 2015.
· "eBay Acquires China's EachNet," CNN Money, June 11, 2003.
· "Taobao vs. eBay China," Forbes, April 5, 2006.
· Keith Bradsher, "eBay to Form Venture in China With a Local Partner," The New York Times, December 20, 2006.
· "eBay's China Site to Be Shut Down," BBC News, December 20, 2006.
· "Tesco Confirms Fresh & Easy US Exit," BBC News, April 17, 2013.
· Zoe Wood, "Tesco Writes Off £1bn in Fresh & Easy Exit," The Guardian, April 17, 2013.
· Andrea Felsted, "Tesco’s Fresh & Easy Failure in the US," Financial Times, September 10, 2013.
· James Davey, "Tesco Calls Time on U.S. Venture with Fresh & Easy Sale," Reuters, September 10, 2013.
Contact Global Wisdom for Growth Opportunities
Are you looking to expand your business internationally? Contact the Global Wisdom team at mail@globalwisdom.info for guidance on how to navigate and succeed in international markets. We are here to help you leverage global opportunities and achieve your business objectives.
Disclaimer: This publication is intended merely to provide some key information and not to be comprehensive, nor to provide legal advice. Should you have any questions on the information provided, please contact us.
